SaaS // Cloud // Life

In parts one and two, I documented our entry into the world of e30’s as we began building a budget race car for Lemons or Chump. Keen to have two functioning transmissions, I was making my way to San Jose to pick up a transmission with a rear housing to replace our broken one from the “driveshaft incident”.

It turned out the seller was having to clear his e30 parts and cars collection because his parents’ house is in an HOA, and the HOA were fed up of their front yard, which was basically a collection of e30s and site of constant wrenching. They’d been told to get rid of the cars ASAP or face legal action.

One of the cars facing disposal was a non-running, ratty-looking 1990 325i coupe. The seller purchased it because it had been fitted with a bunch of fancy racing parts (it was a local drifting car before its engine failed). He’d slowly swapped parts from the coupe to his e30 sedan with the intention of getting the coupe back on the road and running, but there wasn’t much time left before the HOA had promised to take legal action…

Hmmmmm …

This was intriguing. The 1990 has ABS. And, while it’s in much worse condition than our original 1987 e, there have been a bunch of performance parts fitted to it. Plus, we have a running engine from our 325is that we could swap into it… We asked ourselves, “Why don’t we sell the e and buy the i?”

Back to Craigslist! We listed the e for $800.00 (unbelievably, e30 values had risen in the year that had passed since we bought it) with what were likely the world’s crappiest Craigslist photos. As you can tell, we literally made no effort with the photography:

After MANY, MANY annoying Craigslist conversations, we found a buyer from San Jose who paid $750.00. When it came down to it, we made a $250.00 profit for storing the car for a year.

With the sale completed, we headed back down to San Jose to try and do a sweet deal for the HOA infracting, non-running, salvage title, former drift-car e30…

After a few hours’ work, trying to get it to run (including swapping the battery and pushing it down the street numerous times), we negotiated a deal:

We had another e30, for $500.00 of your finest U.S. dollars!

By the time we got it on the trailer and prioritized getting ourselves some well-deserved (Greek?) food, it was dark. For that reason, we only have this terrible photo to share:

Dinner was devoured by the three musketeers (Julien, Adam and myself). We were celebrating a little, feeling proud that we’d made some (better?) decisions and (luckily) profited from our first mistake!

In the last post, we’d bought a $500.00 e30 to go Lemons racing, discovered it was broken, decided to buy a 325is parts car to fix it, and spent a day picking up the parts car from Watsonville…

Since the 325is was our parts car, we decided to immediately tear into it to get rid of the shell, as we were taking two spaces on Ash’s drive…

Hood / Bonnet off and ready for the engine to come out:

Wings off, radiators, fan, bumper, grille and lights out:

Here the engine is starting to come out:

Ash surveying the “carnage:”

Here I am, leveling the motor out:

And with my wrenching ‘tash:

We got the engine out and onto the stand. What you can’t see from this picture is the trashed transmission case from the driveshaft incident, and a bent driveshaft from when it was flying around the car at about 55mph.

We were then able to push the car into the garage and continues stripping it down, with help from Adam, Julien, Chris, Matt, Fed, and Ash and his kids.

Here you can see the shell stripped and loaded onto the rental trailer. That was NOT easy without any wheels or suspension! Good job we had MARMS (code for Adam’s strong arms, as opposed to my terrible back) and Matt on hand.

We trailered the shell to the scrapyard the following day:

Off to car heaven…

It was at this point we started to consider the implications of all we had done. We’d stripped the “fast” 325is and were going to have to refit everything to the “slow” 325e. While I was racing with the Bernal Dads team, we’d had an experience where a brand new tyre was ruined by flat spotting it. I also learned that brake modulation is super hard while racing in a pack. With all of this in mind, we started to think about the many implications of fitting the fast stuff from the 325is to the 325e… For example, the 325e, an early pre-facelift car, didn’t come with ABS, which is rather useful for racing (especially for a team of mixed abilities). To retrofit it, we had to cut the ABS off of the IS car for welding to the e. This is just one example from a long list of similar items to alter / fabricate.

In the interim, we needed a rear transmission case to replace the trashed one from the “driveshaft” incident. That sent me back to the oh-so-trusty Craigslist, but nothing turned up locally, so I posted a want ad. I got a couple of responses, including one for a Getrag 260 transmission with worn out bearings, offered for $40.00 in San Jose.

I got back in the car and trundled down to San Jose (again) to pick up the transmission for its rear case.

Thanks to Fiid for the engine crane and stand loan, and to Matt for lending a hand and taking photos.

This is a diversion from most of what I’ve publicly written about in the past. As all of my professional writing now resides at work with ForgeRock, I’m pivoting my blog to share more stories that fit firmly in the “life” category.

For those who know me well, you already understand that the only thing that rivals my obsession for technology is my passion for cars. And, for the last year or so, I’ve been building a race car with a gaggle of friends. Our primary objective is to race in the 24 hours of Lemons and ChumpCar series. This post is just a start at documenting all the work we’ve done, and there will be much more to follow.

It all started over an innocuous dinner with Adam and Julien at Don Ramon’s, where we all got very merry excited to build and race a $500.00 car. Within days, Chris and Julien procured a $500.00 1987 325e in San Jose and dragged it to Chris’s yard in Brisbane- all while Adam and I were at work.

According to the seller, the 325e “just” needed a new clutch master cylinder (a ~$30.00 part). Apart from that, the engine started and ran well. Suitably lemon-y. They were kind enough to even include the part.

We set to work trying to fix the clutch master cylinder, ordering a new one and, in the end, building a custom actuator in an attempt to get the right actuation on the rod…

This is discovering the shear load of this part….

In the end, it turned out that it wasn’t the clutch master cylinder that was the problem. It was the throwout bearing, which means (at the very least) dropping the gearbox.

We did further research into the “e” part of 325e. While we had been running on the assumption that this was a higher capacity motor that with an “i” head could become a 2.7 “i,” we learned the reality: that only works for 1988 “Super ETAs”, unless you swap the pistons:

the stock 325e pistons will not work with the 325i head because of the different design; the 325i has a domed cylinder chamber to match the domed pistons while the eta has a flat cylinder chamber to match the flat pistons. Throw the flat 325e pistons into a 325i head and you have a mismatch that causes a lower compression ratio, and this for this procedure, lowering is a bad thing.

We considered that we could always turbo the engine (i head plus e block). However, the cheapest eBay kits are ~$550.00, and turbos are notoriously bad for endurance races, so we decided that wasn’t a great idea.

Our conclusion: get an i motor. And, since we wanted an LSD, see if we can find an i car with one, or an IS car that had one as standard.

After many fruitless Craigslist searches, we finally found a lead. We booked a U-Haul dolly…

and a headed off on a trip to Watsonville, to follow up on this:

It ended up being your typical mis-description: no title, $600 in back fees, missing interior, missing MAF, only ran on starter spray, etc, etc. But after I sunk four hours of my time renting a horrible tow dolly and driving all that way to look at it, we decided to look at the bright side. It was an IS, appeared to have a running engine, manual transmission, 15″ alloy wheels, and the all-important LSD.

Just $450.00, and it was ours.

Now to get it to the garage. Since it was missing the steering wheel, I foolishly decided to tow it with the rear wheels on the ground… what could possibly go wrong if it was in neutral???

Well, lots. Especially if a previous owner had tried to disassemble the driveline (this hadn’t been communicated to me), and then the car throws its driveshaft on the freeway…

Here I am trying (unsuccessfully) to remove the driveshaft, on the ground, at a gas station in San Jose somewhere. That failed, so clearly it had to have its front wheels on the ground. That meant switching it with just my wife and me to roll it off, and then back onto the dolly in the other direction… Not fun! And did I mention that it’s hot in the summer in San Jose? Really hot.

Back on the dolly, but with a new problem to fix. We had to stop the front wheels from turning!

After a quick trip to Harbor Freight, some new tie down straps plus vice grips yielded a non-snaking, towed vehicle.

It was a long day of eventful towing before we delivered our IS parts car to Ash’s house in Pacifica. Here it sits alongside the parts’ future home: a registered and titleable 325e.

From my experience working at one of Europe’s largest and oldest enterprise SaaS companies– we’ve been on this journey for a long time- I think there is some colour to be added to Roman’s post, plus some room for debate. I think, however, the dismissal of the lean startup theory for Enterprise software is ill advised.

The highlight of the post for me was his 6 requirements of Enterprise Software Sales Success:

1- Have a significant, monetizable value proposition. Getting people to use something is different from getting them to pay for something. From the beginning, your offering has to be something that people find so valuable that they’ll pay for it, not just play with it. Yammer, the enterprise social platform, had plenty of penetration, but it was not fundamentally connected with the business systems people used every day to do work. The company was sold to Microsoft, which could bundle Yammer’s capabilities into its Office suite and exploit its significant presence in enterprises.

This is the so-called penny gap. Ironically, in Enterprise software where the purchaser is often not “paying,” you’d think the gap would be smaller… But, even though there is a very strong correlation between use and value, the penny gap remains significant. If you can change someone’s habits so they feel like it’s a must have– you could strike gold. The challenge for vendors is: If you want a lower Customer Acquisition Cost (CAC) for your product / service you have to deliver significant value up front in the form of a trial or freemium offering to get people to change habits, but then still leave enough room for the upsell to monetise. Some might say Yammer did this very effectively, but beware- the maverick sale is often not welcomed by IT.

2- Sell the way the enterprise buys. Selling to the front office can be on an inbound basis, with relatively horizontal, lightweight, consumer-like pitches. The problem is, you’ll find that some serious company – Salesforce, Google, and Microsoft – already owns most of the desktop. Enterprise IT is used to provide significant, detailed explanations of functionality on an outbound sales basis. That means real salespeople burning real shoe leather. If you want to upsell, you’ll probably have to up-staff.

Yes- if your initial sell is to IT folks (like here at Mimecast), that’s exactly what you need to do. But if IT doesn’t have to be the initial buyer, can you first build a bridgehead then sell to IT once significant value is being delivered? A bottom up vs top down sell as Marc Andressen would put it. That’s how Salesforce got its foot in the door, as did Yammer. But don’t kid yourself- if you want to upsell, you’ll need that shoe leather, because getting past IT even when it’s being used is no cakewalk. However, in an ideal world I’d rather be upselling than prospecting for net-new names. And don’t forget you can use those vendors to sell for you in their marketplaces. Salesforces’ AppExchange is their strongest feature IMHO.

3- Meet enterprise requirements. Your technology will need to satisfy all of the enterprise’s requirements for the “-ilities”: scalability, reliability, security, availability, and so on. Enterprise IT wants to know that the software can integrate with long-established systems of record. Be prepared to answer questions about single sign-on, uptime, firewalls, recovery-time objectives, service-level agreements, and failover.

So, so true.

If you don’t have or don’t want to have the “-ilities,” forget selling to the enterprise. Although in actuality it’s more about perception than reality- if you start with the “-ilities” in mind, you can make yourself “enterprise ready” from the get-go. Reverse engineering it is much harder work. It took us a long time to convince banks to store their information with us, but now they do. Things like ISO 27001, SLA’s, monitoring, reporting and alerting help significantly. And on integration, read Active Directory. As the buyer, I want seamless integration with AD as Microsoft owns the desktop and the authentication architecture. I read a recent Gartner report saying Microsoft has approximately 80% of the business email market compared to Google’s 2%. You might like Google Apps, but by-and-large your Enterprise customers don’t.

4- Focus on targeted value scenarios or first go vertical. Because of the “crowded shelf” in the front office, your technology stands the best chance of getting an initial enterprise sales bump if it can solve a deep and irksome process problem that is a known issue across industries, or only applies to one industry. Enterprise IT often won’t buy from companies that haven’t already sold to quite a few of their peers, but you have to start somewhere. Your “land and expand” strategy might do best by starting with a nettlesome issue, deep in the weeds.

This is classic “Crossing the chasm” advice, which speaks directly to the first rule of having a “significant, monetizable value proposition.” I think however, it should be split into two seperate issues. If you want to sell to or through IT, then solving something niche and nasty is the way to go. However, the front office is not nearly as crowded as Roman asserts. The whole BYOD and Cloud revolution has proved consumers (i.e. “front offices”) desperation for more tech in their lives, not less. I don’t know of a single IT department with enough time on their hands to satisfy every user’s requirements. If consumers can solve their problems without IT’s involvement, in a safe and future “-ilities” passable way, then much the better for the customer and vendor. But if you rely on the consumer sell and can’t pass the “-ilities” test, you’re going to be in trouble as soon as IT finds out. And you’ll likely be the recipient of a big boot. That topic however is a minefield and a series of posts on its own, but suffice to say a careful balance has to be negotiated.

5- Have some patience. We like to say, “selling to the consumer is about selling positive emotions. Selling to the enterprise is about suppressing negative emotions.” Enterprise IT is not a culture of early adopters. “Ain’t it cool?” is not enough. Enterprise IT sales cycles are often months long and you should prepare to be met with skepticism. Consumers usually ask, “Is it awesome?” “How much does it cost?” Enterprise IT asks, “What if it doesn’t work? Will I get fired?”

This is spot on and speaks once again to the “-ilities.” If you flunk the “-ilities” tests, then IT immediately thinks about the “What if it doesn’t work? Will I get fired?” questions. But, equally, consider how your system can be implemented to deliver value without risking all of those factors. Can you do something non-trivial that delivers value at low levels of risk to IT or users to build trust?

6- Establish a control point. With enterprise IT, being the first to market is not always the winning scenario. What’s more important is having a gambit that puts your technology’s hooks in an organization’s fabric – a “control point” of sorts. Your technology has to have some aspect that will prevent customers from moving to the nearest competitor tomorrow. Salesforce and LinkedIn sell dozens of products based on their control of customer data, which can be aggregated and, importantly, monetized, because they reveal important trends in business. Yammer’s control point was its community of thousands of people in an organization, which made it difficult to replace, though ultimately, it could not capitalize on that proposition alone.

This sounds more sinister than need be- Instead, I would write “Establish a position of persistent value.” Deliver persistent value and Enterprise customers won’t want to swap you out. Ever. You don’t want to become a tax. And first to market is often not the winner- Microsoft grew their business by building arguably the best, not the first products- a fast-follower strategy. The famous expression the first pioneer up the hill is the one with the arrows in their back is never truer:

Innovator

First to develop or patent an idea

Product Pioneer

First to have a working model

First Mover

First to sell the product

47% failure rate

Fast Follower

Entered early but not first

8% failure rate

Also, having competition validates the market, which is especially important in Enterprise Software.

However, I disagree about the Yammer comments. A $1.4bn exit does not strike me as a company that “could not capitalize on that proposition alone.” IMHO Microsoft’s acquisition cements Yammer’s position in the Cloud Social Software space, probably making it the de-facto choice for Microsoft shops worldwide.

And, finally, on Lean Startup- I’ve been a big proponent for many years of the test and data driven approach to solving unknown unknowns to create products people actually want to buy. To advocate against it flies against what is now conventional wisdom.

This model just won’t work in the B2B space. New products, especially those aimed at IT, must usually be sold. If you don’t have both the technology logic and the business logic of your product worked out, the founders and early investors are in for a rough ride.

That makes the assumption that you’re right about your assumptions, a belief system that surely has been debunked by the Lean Startup movement?

You need to design your value proposition and product in a way that enables you to iterate your way to success without alienating the Enterprise software buyer. No mean feat but an absolutely essential one, if you are to succeed in Enterprise Software. Start with the “-ilities” and focus on solving pain. My experience is that the buyer is delighted to be involved in a process that iterates to solving their problems.

Net-net, if you’re looking to sell to the Enterprise, you better start investing in some shoe leather. But think long and hard about how you can get software into users’ hands before IT to help IT buy. Ultimately, lowering your Customer Acquisition Costs is the holy grail and hallmark of a successful SaaS company. Nobody says it better than David Skok: Startup Killer: the Cost of Customer Acquisition.

In my first post Anders and I looked at how Cloud is changing the traditional IT supply chain and discussed some of the transformation that needs to take place.

As usual- the most interesting responses to the post were offline- but it gave me some deeper insight into how some sectors are thinking at the moment.

One of the most interesting was the comment that:

“Traditional vendors are just looking at their Channel for sales now”

Where the vendor used to use their channel to add value to the sale by installing, configuring and maintaining the software/hardware/etc, the majority of that work is done by the vendor now. And by default, if the Channel doesn’t change what it does, it’s becoming not much more than sales.

Now I think that’s a pretty cynical view- but I suspect they were playing devils advocate to make the point.

And it’s a point well made. The good times, as we knew it in the IT channel are gone. Remember the perfect storm? Economic and Technical change at once?

I think the good times will return, they’ll just be different.

How can the Channel evolve and adopt Cloud?

• Why should the Channel take the initiative?
• What assets do the Channel have today which they can leverage?
• How does the channel make money? (hint: Cloud support won’t replace on-premise support)
• Where should the Channel start?
• Why won’t Customers do it themselves?
• Why is Cloud positive for Customers and the Channel?
• What value can the Channel add?

Anders Trolle Schultz came to London recently and I got to spend some time with him on his short visit. For those of you that don’t know him- Anders is one the leading lights in SaaS and Cloud in Europe and in particular routes to market or distribution. He helps a number of vendors, both large and small with their SaaS strategy and since I’ve been remiss in posting text blogs recently, I thought it was a great opportunity for some video blogs.

I’ve been wanting to catch up with Anders for months- in December we collaborated in putting together this presentation (below) to the UK IAMCP chapter on the changing landscape for Resellers in the Cloud World, as many of know you is turbulent.

Anders comes at IT from a really interesting angle- he’s worked in IT, Supply Chain and Consumer goods- he really understands the value proposition of IT to the buyer. He always reminds me- “WHY IT, not HOW IT”, which is good, as technologists we often love technology for technologies sake.

Some people have said- the Cloud represents a “Perfect Storm” for the Channel –what is making that storm happen?

In this first part of a three part series, we cover:

· How does the supply chain (i.e. the channel) need to change?

· Where do people fit into the supply chain in the future?

· What do people need to do to transform? What services will they be providing?

The Cloud is creating a “perfect storm” in the Channel business. A lot of the value Partners used to offer Customers is now available through the Cloud without them- Email, Collaboration, Storage and even Authentication!

Not only that, but the shift from traditional licenses, Cap-Ex and Maintenance revenue to Op-Ex or Subscription revenue is wreaking major havoc with profitability and cash flow. If your business is geared towards big, lumpy sales, with healthy margins, shifting to a smaller recurring income is going to disrupt the business model.

And because the technology is changing, to be less technical, with more technical detail abstracted away, the skills partners have been investing in for years are becoming obsolete. The people that provided that service aren’t needed anymore.

But I think the Channel is too quick to look to doom and gloom. They mustn’t forget their USP’s.

They’ve got great TRUST with real customers that pay them actual money.

The stuff Cloud providers CRAVE. They have in fact got a head start in the Cloud Business because the Economics of Cloud are so hard, as they’re discovering for themselves. But the reason Cloud Economics are hard is because it costs Cloud providers money to acquire customers. The Channel has the customers already. There is a perfect fit here if the channel can get to grips with the model.

So what does the Channel need to do to transform? Here is my top ten:

Construct a Portfolio of Cloud Services

Start eating their own Dog Food- using Cloud their own business

Sell Support for Cloud Services- It won’t fix itself

Add Services around Cloud- It won’t configure itself

Cross Sell, Up Sell- Keep that IT budget but deliver more

Do Due Diligence on Cloud Providers- They aren’t all the same

Guide Cloud in to Networks Safely- and securely

Start Delivering On-Ramp Cloud Services Today- because that is where demand is

It’s been a little while since I’ve posted on this blog- but I felt it was time to give an events update as there is some really good stuff happening and readers don’t seem to be getting the best of me these days…

Probably the hottest topic in SaaS is Sales and Marketing- nothing defines success in SaaS as much as how cheaply you can acquire a customer for- Customer Acquisition Cost (CAC) as we often refer to. Those of you that track the space like I do will probably be aware of the major moving parts- especially content, but it’s great to have a workshop brought together to make it easy to digest and get you away from your email…

There are three forces that impact marketers have not seen since the early proliferation of the Web: the growth of social media, the ubiquity of mobile devices, and the embrace of entertaining online. The change in audience expectations are changing and putting unprecedented pressure on B2B marketers.

Presenting at the event are analysts Sirius Decisions, M62 Communications, Brainshark and me. You probably will have seen their work- Sirius are one of the few analysts that work at the intersection between Sales and Marketing, M62 are one of the leaders in presentations- how to be more effective and Dave from Brainshark is presenting on the challenge for marketing to create relevant marketing for the various stages of the buying cycle.

The Content Crisis: Three forces making your B2B marketing content irrelevant with presenters from the US and UK- brought to you by Brainshark- tomorrow -Wednesday October 20th from 8:30-10:30 a.m. at the Charlotte St. Hotel in Bloomsbury/London.

I’m a last minute addition to the bill talking about cloud computing- so apologies for the late notice.

For those of you that haven’t heard of Brainshark, they’re an interesting SaaS company- their service enables the rapid creation of on-demand rich-media presentations and have recently gone freemium…. (my.brainshark.com) Hosting the event is their Director of Customer Community, Irwin Hipsmann who leads their community and retention programs- if you’re looking into either of these for SaaS- he is a superb person to get to know.

If you would like to attend the breakfast seminar or learn more about the topic, please contact ihipsman@brainshark.com

In other news, Microsoft, Salesforce, Ray Wang, Xobni and Banks in the Cloud.

TWIS Events

Some of you might remember from last week that I’m talking on a SaaS panel at HostingCon July 19-21 in Austin, Texas – with Jeff Kaplan, Lincoln Murphy and others- for TWIS readers there is a discount code and a pass to give away

Because of the holidays- I’m going to extend the draw for a couple of weeks, and draw the pass on the 14th of June- so get your entries in! To enter- email me jp@justinpirie.com with the subject “HostingCon”

If you can’t wait until then, you can use the discount code “SaaSGroup2010″ which will provide an extra $60 off the current pricing of a full conference pass with lunch for all three days.

It looks like a great conference.

TWIS#27

I got a bit carried away last week with TWIS #26– David Skok’s post on Sales Complexity was absolutely amazing, and I didn’t have any room for anything else, notably Google I/O.

I’ll draw it on Monday the 31st of May, so you’ll just have time to get the early bird pricing

If you can’t wait until then, you can use the discount code “SaaSGroup2010” which will provide an extra $60 off the current pricing of a full conference pass with lunch for all three days (about $399.00 at the moment).